Lower gas prices helped cool the headline number
In January, Canada’s annual inflation rate dipped to 2.3%, slightly lower than December’s 2.4%, according to Statistics Canada.
Most economists had expected inflation to hold steady, so this small drop came as a mild surprise.
⛽ Gas Prices Did the Heavy Lifting
The biggest reason for the slowdown? Cheaper gasoline.
Gas prices were 16.7% lower compared to January last year, which pulled the overall inflation rate down.
If you remove gasoline from the calculation, inflation would have been 3% instead of 2.3%. That shows just how much fuel prices influenced the headline number this month.
🎯 Core Inflation Moves Closer to Target
The Bank of Canada pays close attention to “core” inflation measures. These exclude volatile items like gas and temporary tax effects to get a clearer picture of underlying price trends.
In January, those core measures also declined, bringing inflation closer to the Bank’s 2% target.
Economists described the report as encouraging, especially since inflation now appears to be easing across more categories, not just energy.
However, the Bank has signaled that the bar for cutting interest rates again is high and monetary policy cannot fix supply-related issues.
In other words, progress is welcome, but policymakers are staying cautious.
🛒 Grocery Prices: Still High, But Cooling Slightly
Food inflation eased a bit in January. Grocery prices were up 4.8% year-over-year. That’s down from 5% in December.
The moderation was largely due to lower prices for fresh fruit. Strong and steady harvests in producing regions helped improve supply and reduce price pressures.
🧾 The GST Break Is Still Affecting the Data
Last year’s temporary GST holiday, which ran from mid-December 2024 to mid-February 2025, continues to distort year-over-year comparisons.
Because certain items were tax-free during that period, prices now appear higher when compared to last year.
This impacts:
- 🍽 Restaurant meals
- 🍷 Alcohol purchased from licensed stores
- 🧸 Toys, games, and hobby supplies
- 👕 Children’s clothing
So part of the annual increase in these categories reflects base effects rather than fresh inflation pressure.
🏠 Shelter Costs Continue to Cool
Housing-related inflation has been slowing since early 2024, and that trend continued in January. Shelter inflation came in at 1.7% year-over-year. This is the first time in five years it has dropped below 2%
Rent growth slowed most noticeably in Prince Edward Island and Saskatchewan.
The measure tracking how much homeowners pay in mortgage interest also continued to ease, helping reduce overall shelter inflation.
🔎 Conclusion
For policymakers, this is progress. For borrowers and homeowners, it reinforces the idea that inflation pressures are cooling gradually, not collapsing.
At Garland Mortgage, we translate inflation and rate trends into real advice for homeowners and buyers across Canada.
Reach out anytime. We are here to make sure your mortgage continues to work in your best interest.
